More gyms, hotels and offices: These are some of the uses that owners and operators of Israeli malls are finding for unused space as online shopping drives down traffic to brick-and-mortar stores.
The clothing and shoe stores that have long been mall mainstays are giving way to an array of nonretail uses that include hotels, housing for seniors, offices and bars and restaurants. In the industry it’s called “mixed use” and in many cases it may even require malls to increase their floor space.
TheMarker has learned that the owners of downtown Tel Aviv’s Dizengoff Center are weighing a plan to develop a youth hostel in space now devoted to stores. The 1,800-square meter facility would offer small rooms, of 11 square meters, and shared bathrooms.
The mall’s management declined to discuss any negotiations it is having on the hostel plan, but said it favored the mixed use concept in principle.
“Over the last year we have added 2,000 square meters of new space that doesn’t include any apparel space. We’ve brought in a bar, a nursery, a virtual reality and gaming store, a Nintendo store and others. A year and a half ago we added a post office,” said Alon Piltz, one of the mall’s owners.
“For years everyone told us that a mall needs to have two floors and lots of clothing stores, not like what we have – a shopping center on top of which are apartments and offices. Now the entire industry is moving in our direction,” he said. “In an urban space it makes much more sense to have mixed use. It saves space and infrastructure – sewers, ventilation, parking and the like.”
Tel Aviv’s Gan Ha’ir Mall will next week open 2,000 square meters of office space, most of which will be taken by the high-tech company Wix.
“Hamashbir Lazarchan [the department store chain] left and existing stores reduced their area, so a lot of space was available from the shared office space company Mixer, most of which was rented to Wix,” said Asaf Golan, Gan Ha’ir’s CEO. “The bottom line is that I want to increase sales turnover for the mall’s tenants and one way to do that is to create traffic from the 500 people who come to the mall to work. It will be their home mall.”
Israel’s hotel industry has seen its business grow in recent years as tourist arrivals have soared to record highs; mall owners now aim to get a piece of the action. Ofer Group was the first to act on the idea, developing a Prima Hotel next to its Grand Mall in Petah Tikva.
Azrieli Group is planning an 80-room boutique hotel adjacent to its mall in the town of Modi’in. The company is also adding 80 rental apartments above the mall to the 67 that are already there.
“In every place that we can add additional uses we’ll do it,” said Arnon Toren, Azrieli Group CEO. “It could be a hotel, medical clinic, gym, etc. We recently bought a hotel in Jerusalem (the Mount Zion, for 275 million shekels) and we plan to erect hotels at other malls so long as zoning regulations allow it.” The hotels could be next to or above the centers, he added.
Mall owners have little choice but to look to other uses. Data from Gama Management & Clearance, a financial services company, shows that of Israel’s 180 billion shekels ($51.5 billion) in annual retail sales, 20 billion has already moved to online – two-thirds of that to overseas websites like Amazon and eBay. Online shopping in Israel is growing at a 20% annual clip.
The retail consulting firm Czamanski Ben Shahar & Company predicts that e-commerce’s share of retail spending will grow from 11% today to 16% in five years. In shekel terms that comes to 34 billion in five years from 19 billion now. In addition, Israelis will do more shopping while traveling abroad, a trend made possible by the big drop in airfares since 2013. As a result, overseas shopping at foreign brick-and-mortar stores will grow from about 10% of total retail sales to 15%, the firm estimates.
Haim Katzman, CEO of the real estate company Gazit Globe, is joining the mixed-use trend.
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“When we started in the segment there was no such thing as a gym in a mall. Medical accounted for 2% of the space, compared with 15% today. You want to do whatever is needed to make a mall the preferred place for consumers, after the home and office. We want to be in a situation that from their office or home, they’ll come to the mall for leisure, shopping, a haircut, exercise or eat at a restaurant – to offer anything and everything to bring consumers to our centers several times a week,” he explained.
Over the past year, Gazit Globe, among other things, bought the Rav Chen Theatre on Dizengoff Square in Tel Aviv and begun adding 60,000 square meters of floor space to its G Mall in Rishon Letzion, southeast of Tel Aviv.
“Everyone – the cities, the government and even environmentalists – recognize that it’s important to concentrate people in high-demand areas because it will allow us to leave more open space elsewhere,” Katzman explained.
Themixed-use strategy hasn’t so far benefited their retail tenants, which have seen sales per square meter fall in the last few years. Fashion chains, as well as retailers in the book, electronics and children’s ware segments, were enticed into the malls but then were caught flatfooted when the mall developers overbuilt. Sales fell on a square-meter basis amid the oversupply of shops.
Today, the biggest of the mall owners continue to report strong sales and profits, but many of their retail tenants are faring badly. The malls have no choice but to change direction.
Avi Schumer, CEO of the Tzomet Sfarim bookstore chain, captured the feeling of many retailers at a recent conference when he said: “It annoys me that in the letters mall managers write you call us ‘family.’ In fact, we’re neither partners nor family.”